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Question

A profit-maximizing monopolist sets an output of 100 per day and a price of £10. Which of the following statements is true?

A The firm's SMC and MR curves intersect at an output of 100, and the point on its demand curve at this output is at £10 Correct Answer Incorrect Answer
B The firm's SMC and MR curves intersect at an output of 100, and the point on its MR curve at this output is at £10. Correct Answer Incorrect Answer
C The firm's SMC and AR curves intersect at an output of 100, and the point on its MR curve at this output is at £10. Correct Answer Incorrect Answer
D The firm's SMC and AR curves intersect at an output of 100, and the point on its AR curve at this output is at £10. Correct Answer Incorrect Answer
E All of the above Correct Answer Incorrect Answer

Solution

Statement a is true. The intersection of SMC and MR is always best, unless it results in a loss that exceeds the firm's total fixed costs, in which case it is better to shut down and produce nothing. To find the price a price-setter must set, we always look at the point on its demand curve at the output it wishes to sell.

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